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Why build-to-rent could be a boon for architects

Alma nac Cargreen Road
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Developers, investors and local authorities are all eyeing up build-to-rent. Kate Youde reveals what and who you need to know to tap into this market

Barely a week goes by without the plight of Generation Rent, the young people priced out of buying their own home, hitting the headlines. And the stories will keep coming: PricewaterhouseCoopers predicts that more than half of 20 to 39-year-olds will be private renters by 2025. It estimates that 7.2 million households – an extra 1.8 million households and almost one in four of the UK total – will be living in the private rented sector (PRS) by 2025. That is slightly more than the number of households that will own their own homes with a mortgage.

With this growth comes demand for new homes and the emergence of a build-to-rent sector – homes designed to be let out – to meet the need.

Private institutional investors, pension funds and housing associations are among those entering the market. In January, Legal & General Capital launched a build-to-rent partnership with Dutch pension fund manager PGGM to invest £600 million in providing more than 3,000 purpose-built, private-rent homes in the UK. It pointed to the examples of Europe and the US, where property markets funded and managed by institutions have helped increase housing supply, lower prices and provide better products and services.

Knight Frank estimates that the UK build-to-rent sector, backed by large-scale investors, will be worth a huge £50 billion in 2020. This is equivalent to 5 per cent of the total PRS market value and more than treble the £15 billion investment in the sector during 2015. But what opportunities for architects lie behind these figures and what challenges does designing build-to-rent pose?

There were more than 6,500 build-to-rent units under construction in London as of February, according to the British Property Federation (BPF). The organisation has called on the new mayor of London to identify 20 ‘build-to-rent opportunity areas’ to kickstart regeneration and increase the capital’s build-to-rent target to 7,500 homes a year, an increase of 50 per cent on Boris Johnson’s target of 5,000.

PRS   Build to Rent   Graphs   UK

A BPF map, which tracks the number of build-to-rent units that have planning permission, are under construction or complete in the UK, shows more than 40,000 units stretching between Aberdeen and Exeter – this from what BPF director of policy (real estate) Ian Fletcher calls ‘a relatively standing start’ three years ago.

Paul Karakusevic, founding partner of Karakusevic Carson Architects, says that while the private sales market is ‘having a little bit of a hiccup’, build-to-rent could potentially help fill some of that capacity and demand.

His firm is working on between 4,000 and 5,000 homes for build-to-rent schemes, including two ‘very ambitious’ local authority programmes featuring homes for market rent and discounted market rent. It is working on five sites with more than 1,000 homes as part of Newham Council’s Red Door Ventures build-to-rent programme and is at the masterplanning stage for 2,000 homes with Enfield Council as part of its estate regeneration and borough-led build-to-rent programmes.

‘[Authority-backed schemes] keep the housing stock in the public sector and obviously [these organisations] are going to be more responsible as landlords than most of the PRS providers that are out there at the moment,’ says Karakusevic. He suggests a lot of practices have been doing build to rent for long-term institutional investors for the past five years but says the local authority angle has only developed in the past couple of years. He  explains: ‘The psychology is better: it’s long-term, stable neighbourhoods.’

PRS   Build to Rent   Graphs   London

The difference between build to rent and a lot of market sale product, adds Karakusevic, whose firm has also been working with Grosvenor on a masterplan for more than 1,000 homes, is that ‘decisions are made for the next 30 to 200 years rather than a short-term “what’s going to look great in the sales and marketing suite” [approach]’. He says it is more interesting to design for a client who thinks about the long term. And not all clients do. ’Those wanting to just flip on a scheme are barely creating more than a [standard] housing-for-sale project, looking at short-term returns and with little incentive to drive up quality,’ says Phil Doyle of 5Plus Architects.

He believes the emergent PRS scene in the UK has parallels with ratings in the hotel sector. He says: ‘You have the budget offer at the bottom of the market, essentially delivering a similar or worse-quality residential scheme built in the last cycle; and then five-star schemes at the top, with bigger apartments and more amenity space.’

All eyes will therefore be on the quality which will be achieved by Rogers Stirk Harbour + Partners (RSHP) with its long-awaited high-rise in Elephant and Castle. Of the skyscaper’s 457 apartments, 278 will be for private rent. The scheme is backed, in part, by Realstar Group, one of the largest owner-operators of private rental property in Canada with about 30,000 suites. It has 1,000 private rent units running, under construction or under redevelopment in the UK. The primary focus of the company, which is partnering with Mace and the Greater London Authority on the RSHP-designed Highpoint tower, is in the capital but it is looking elsewhere on an ‘opportunistic basis’.

PwC predicts that more than half of 20 to 39-year-olds will be private renters by 2025

Ryan Prince, vice-chairman of Realstar Group’s international activities, says private rental property has different requirements for amenities and specification and does not need all the same ‘bells and whistles’ as for-sale flats. But, he adds, it has to be more cost-efficient because it will be an ongoing business. He says: ‘There’s huge scope in the architectural and construction worlds to figure out innovative ways to deliver efficiency both for the customer, but also in terms of the build in terms of durability, quality and time and cost to build.’

It is not only inability to buy that is driving people to rent, he says, but a change in what they are looking for, with the Millennial Generation ‘more attuned to the idea of owning fewer things’. He says: ‘The problem [in the UK] is that the ideal rental product does not exist in the main in the market yet.’ That is, he adds, something hassle-free and reliable with a high level of service, run by professional landlords.

Andy von Bradsky, chairman of The Housing Forum, foresees ‘a big opportunity’ for architects in build-for-rent. ‘It’s a long-term model, which means the design takes account of long-term costs, which is refreshing,’ he says. ‘We are used to housing being built and then sold on the private market; this is the private market retaining stock for the long term and thinking about implications of managing and looking after the asset over a long time.’

Those considerations, according to von Bradsky, include how to look after the envelope of the building, make the internal specification ‘more robust’ as people are coming and going in greater frequency, and putting greater focus on the facilities provided, which can include business centres, concierge services and integrated cafés.

Whitworth St

Whitworth St

5Plus Architects’ 116m-high Whitworth Street West, providing 330 PRS homes

Russell Pedley, director and co-founder of Assael, who estimates that around 20 per cent of his practice’s current work is PRS, says because build to rent is let faster than homes are usually sold, there is a desire to design in larger phases and build more quickly. Whereas a development may traditionally have had more lift cores to allow a building to be released in stages, build-to-rent schemes, he says, have fewer but bigger cores, similar to those in hotel lobbies, and more centralised entrances.

‘There’s almost a shift of emphasis from designing within in the apartment to designing in the common areas, the social areas,’ says Pedley. ‘Many of these build-to-rent operators are looking to create a sense of community within the building because they’ve worked out that if it’s a friendly place and people know lots of people in the building, they’re more likely to stay there longer.’

The entrance of Assael’s build-to-rent scheme for Legal & General in the Blackhorse Road housing zone in North London, is not designated a ‘foyer’ but a ‘forum’, reflecting the projected role of this scheme of 400 managed homes as a focal point for building a community. Currently, there is no separate use class for PRS but Pedley says some councils are saying this is what they want to see.

While there is cross-party backing for build to rent, there are calls for even more government support

A catalyst for growth in build to rent was the 2012 review by Adrian Montague of the barriers to institutional investment in private rented homes, which Fletcher suggests gave risk-adverse institutions like pension funds ‘assurance that government was prepared to get behind the sector’. In December 2012 the government published the first-round proposal for the Build to Rent fund, a £1 billion loan fund administered by the Homes and Communities Agency to fund the development of new homes for market rent. To date, £662 million has been contracted to schemes expected to deliver nearly 6,000 private rent homes; 668 units have been completed through the fund since 2014/15. A £3.5 billion PRS housing guarantee scheme designed to unlock institutional investment in purpose-built private rented homes was extended in the March Budget until December 2017.

A spokesman for the Department for Communities and Local Government says: ‘We are determined to create a bigger, better private rented sector that drives forward investment and increases choice and quality for tenants. Through our £1 billion Build to Rent fund and £3.5 billion PRS guarantee scheme we are attracting billions of pounds of additional investment to build homes specifically for private rent. It means more than 7,500 homes have been built so far, with 12,500 more under construction and a further 22,000 granted planning permission.’

Yet, while there is cross-party political backing for build to rent – a ComRes poll for the BPF last month showed that four in five MPs support the sector – there are calls for even more government support. Prince says: ‘There is some kind of notional verbal support but nothing that really backs that up.’ He suggests the UK build-to-rent sector will ‘not go at any great scale in any material way’, due to land costs, unless the housing market crashes or the government implements policy to equalise the land value equation or allocates land to renting.

RIBA policy and public affairs manager Andrew Forth says: ‘If the site comes down to a competition between private sale and private rent in terms of its final use, at the moment in most bits of prime residential market there’s no way the private rental option is viable in comparison.’

RSHP's high-rise development in Elephant & Castle

RSHP’s high-rise development in Elephant & Castle

RSHP’s high-rise development in Elephant & Castle

‘[Developers] just can’t afford to spend as much on the land. So I think it’s going depend on the government doing more to open up new areas for development.’

Forth says uncertainty around the planning system and policy is ‘acting as a brake on the sector’, whereas investors and their partners need confidence the regulatory environment they face in different local authority areas is consistent.

He says: ‘I think greater clarity on how PRS is going to be treated in terms of Section 106 and community infrastructure levy payments is important, because at the moment it seems to be rather haphazard’. He adds that the government, whose attention, he suggests, is currently on home ownership rather than rent, can do more to give certainty to investors.

There have been fears that changes in stamp duty unveiled in the March Budget, including a 3 per cent rise in stamp duty on additional property purchases, may deter investment in build to rent. Fletcher admits the rise was ‘unhelpful in terms of the messaging it sends to the sector’.

Pedley thinks the build-to-rent market will one day account for 20 per cent of residential design

However, Nick Pleydell-Bouverie, partner at Knight Frank, says that while not ideal, the stamp duty rise puts build to rent on a ‘level playing field’ with other asset classes like shopping centres and office blocks, and was rather more targeted at buy-to-let landlords.

He says: ‘The government is trying to reduce – over time but not overnight – the number of buy-to-let properties out there owned by private landlords.’ A by-product of reducing demand from buy-to-let landlords, he adds, is a reduction in rental homes, which ‘opens a door’ for institutional investors.

Some of these investors may come from the USA, where ‘multi-family’ housing is well established. Pedley has travelled there to look at schemes and urges other UK firms considering designing build to rent to do the same. He thinks the build-to-rent market will one day account for 20 per cent of residential design.

He concludes: ‘The attraction for architects is working for people who have a long-term view of residential design and I think that’s challenging and rewarding.’

Three key build-to-rent developers

Essential Living

Archway Tower

Archway Tower

Vantage Point Archway Tower, north London, by GRID Architects

Essential Living, with an initial £150 million in equity funding from M3 Capital Partners, a real estate investment and advisory firm that has invested in the ‘multi-family’ sector in the USA, is acquiring sites, designing and developing properties and then managing the homes over the long term.

Set up in 2012, the build to rent operator has eight schemes in London and the South East, and plans to deliver 5,000 private rental homes over the next decade. Facilities in its developments include exercise centres, business centres, communal lounges, ‘hubs’ for evening hire and a concierge.

Flagship scheme Vantage Point Archway Tower, Essential Living’s first site with units available for rent, sees a derelict 17-storey 1960s office block above Archway Tube station converted into 118 apartments managed for long-term rent. The £30 million-plus development, opening this summer, was designed by GRID Architects.

Person to know Managing director Scott Hammond

M&G Real Estate

North Acton

Rehearsal Rooms, North Acton

The Rehearsal Rooms development in North Acton, London, by Newground Architects

The real estate fund management arm of M&G Investments was the first institutional investor to go back, after a gap of several decades, into PRS with the £105.4 million purchase in 2013 of 534 private rental units from Berkeley in 13 locations in Greater London, the South East and southern England. Last year it signed the first institutional investor/housebuilder agreement with Crest Nicholson. M&G Real Estate provided £25.2 million to fund 97 private rental apartments in Bath Riverside and signed a £51.5 million deal involving 227 PRS homes in Faygate, three miles west of Crawley.

Flagship scheme M&G Real Estate is working with mid-market developer HUB on 152 apartments in North Acton, its first PRS forward funding deal. Designed by Newground Architects, the £43.5 million Rehearsal Rooms development, part of a regeneration scheme being led by Ealing Council, is due for completion early 2017.

Person to know Alex Greaves, head of residential investment

Fizzy Living

Launched by Thames Valley Housing Association in February 2012 with initial investment of £30 million, Fizzy provides private rent homes on a large scale to ‘rentysomethings’. Features include on-site property managers, free WiFi and utility bills charged at a fixed monthly rate. Fizzy secured debt funding of £40 million from Macquarie Capital in January 2013 and in March 2014 received a new capital commitment of £200 million from Silver Arrow, an investment entity owned by the Abu Dhabi Investment Authority. It has eight sites in London and aims to expand its portfolio to 5,000 units in London and the South East in the next five years.

Flagship scheme  Fizzy bought 136 one and two-bedroom flats in two 15-storey adjoining buildings by PRP Architects in Lewisham Gateway in May 2014. Due for completion this summer, it will be Fizzy’s largest scheme.

Person to know Managing director Harry Downes

Plan of Alma-nac's conversion of a Croydon office building into homes

Plan of Alma-nac’s conversion of a Croydon office building into homes

Plan of Alma-nac’s conversion of a Croydon office building into homes



Faheem Aftab, divisional director, 3DReid

PRS is not a new concept. The idea of large-scale developments with purpose-built, private rented apartments began in the first half of the 20th century. 

Du Cane Court in Balham, which opened in 1937, is the largest privately owned development in Europe. The Art Deco development provided 676 flats and communal amenities. Since then PRS has formed only a small part of the UK’s residential property market, a promising niche asset category – large apartment blocks, with good amenity, communal facility, community and good quality homes as the fulcrum. The PRS concept has taken nearly 80 years to trend and the UK government hopes to stimulate PRS as a way to unlock additional housing supply through its Private Rented Sector Taskforce and the £1 billion Build-to-Rent fund outlined in its Housing Strategy.

Many investors, and property developers too, have started to demonstrate a preference for PRS schemes. By taking advantage of such schemes, they have the chance to avoid the intense sales and marketing expenditures linked to the selling of individual units. Instead, they are developing an on-going estate, offering steady, longer-term gains.

There is a substantial potential in the PRS industry but, similarly to all other types of investments, it requires clear thinking. The quality is critical. The low-standard reputation of the buy-to-let sector must be substituted with service, support and facilities equal to or surpassing those on offer in the market or comparable asset classes, such as the best student accommodation. We have seen how ‘good digs’ carry a cachet and how quality homes can change the approach to accommodation. It is inevitable as people of this generation move into the workplace and look for their first homes that their ready-made expectations of the rental market will be what draws them to them a PRS scheme that offers them quality of life and the financial security of knowing the total cost of occupancy.

Recent research highlights the enormous demand for environments in which people can talk and interact with each other and live together in high-quality homes. These are ideas that go back to Lubetkin’s High Point.

Stephen Hodder, founding director, Hodder and Partners

Has PRS led to better schemes? The sector is an unprecedented market, so it isn’t as simple as saying that it improves design quality. There are different models – some where the developers have a long-term interest and are driving up the quality. They are seeing it as a lifestyle, and the schemes include generous lounges, dining rooms and other amenities. In other models, the architecture is stripped to the bone, simply because of challenging financial equations and viability. We are seeing this polarisation in our PRS workload. As the market is somewhat untested, there is a nervousness. The conundrum is between long-term investment and rental values.    

Hodder and Partners, Manchester

Hodder and Partners, Manchester

Hodder and Partners’ New Cross PRS scheme in Manchester

Caspar Rodgers, partner, Alma-nac

Are the longer-term aims of PRS improving design quality? Where possible, very much so. We have found that there is not only a desire to provide these developments with high-quality, generous, shared amenity spaces, but critically there is also an ambition to really explore how those spaces might work: how they could be both designed and organised to be the most flexible to varied uses, but also how they how they can be refined according to the specific demographic that will make up the building’s community.

Max Rengifo, director, Astudio

Although the private rental sector could take very different shapes depending on the operator or funder, it has brought a much-needed focus on living experience, rather than pure efficiencies. Delivering a long-term investment product, PRS operators are competing for differentiation in the market place: from robust specification, creative residential unit layout design, better amenity offerings to generous shared facilities and even branding. Whatever the approach, we are seeing a different attitude towards the final product when compared with its equivalent market sale product.

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